Microsoft is looking to enhance its features for Hotmail, the world’s most popular email service with over 360 million accounts. Despite their size, Microsoft realized they were losing the feature war to Google and Gmail.

Hotmail wasn t doing the best job it could to serve customers, said Microsoft vice president Chris Jones to reporters. We were behind on features and we felt like being number [one] in the U.S. market was important for us.

One of the new main changes will divvy up email into categories, such as from e-mail lists, from social media and others with attachments, allowing users to more easily categorize spam as well. There will also be a new bar where users can set a status message for an online service.

Other features will let users open Office documents and pictures directly, and watch videos from Hulu and YouTube. Microsoft also wants to make Hotmail easy to use on mobile devices, via POP and IMAP pull protocols or its push email service ActiveSync.

Ads will be retained on Hotmail, with display banners running in a vertical bar on the right side of the screen. They’re not context sensitive and not based upon an analysis of your email and can be turned off with a $20 a year fee.

Source: Wired